Welfare reform

The new Green Paper, No-one written off, looks depressingly familiar; nearly all the major measures have been announced already. There are three key elements. The first is the development of individualised labour market support for people who have been out of the labour market for a year or more. Most of the comment on this has focused on the private sector firms who are engaged in the process. The profit motive means they have a strong incentive to show themselves in the best light, but that apart, I do not have a problem with the principle. It is rather more important that the performance of such schemes to date has been exceptionally poor. Pathways to Work, the programme on which the current policy is based, was also based on private sector firms. It proved to be very expensive. The rate of engagement in the labour market was lower than might have been expected without the programme, and notably worse than the DWP’s own New Deal; there is some suggestion that the programme may actually have delayed people’s return to work, rather than speeding it. To evaluate whether a scheme is working or not, we need to ask what value it adds. The big problems of individualised support are deadweight – where people are included in the programme who were going to improve without it – and spillovers – where people receive support after they no longer need it. Most of the current arguments about effectiveness simply ignore these elements. It is hard to see why it is now being rolled out as a national programme – except for the lobbying by the firms who stand to gain by it.

The second element is the introduction of “conditionality”, mainly understood as the obligation to work or enter training as a condition of receiving benefits. The Freud review was delivered under the misapprehension that active labour market policies began in the 1980s. In fact, there is a long history of conditional rules and work requirements, and it’s not encouraging. Conditionality adds greatly to the complexity of benefit rules. It penalises people for the prevailing labour market conditions. And there is surprisingly little evidence to show that it has a positive effect on labour market participation, even if it has a clear effect on benefit receipt – cutting people off benefits is not the same thing as putting them into work. The figures for the US are heavily distorted by a prison population that is equivalent proportionately in size to Britain’s problem of long-term unemployment.

The third element is the revision of Incapacity Benefit, which is being changed into a new “Employment and Support Allowance”. I wrote about this reform last year in the Scotsman. Suffice it to say here that most of what you will have read or heard about IB through the news media is gibberish. IB is not given through sick-notes, and the numbers of claimants are falling not increasing. I do not think the reforms will work altogether, because the government is not addressing the use of IB as a route to early retirement through ill health.

Taken in all, this is a minor reform, not a major one. There ought to be a fine for politicians, like a swear-box, for claiming that the latest reform is the most important one since Beveridge. This is an incremental change based on a series of badly thought out measures which have been tried, tested and failed. There’ll be further reforms when the next minister comes along.